Wilsons upgrades GYG, tips shares to break $41
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The news: Wilsons Advisory has lifted its price target on Guzman y Gomez to $41.14, up sharply from its previous target of $31.98 following the company's inaugural set of results.
The numbers: Closing at $37 a share on Tuesday, it suggests the broker thinks GYG shares have even further to run despite being up almost 70% since GYG's blockbuster IPO.
Wilsons highlighted that GYG had beat its EBITDA forecast outlined in its June prospectus by 2.9% on the back of higher sales and margins.
Corporate store margins increased by 30 basis points year on year to 17.4% on the back of labour efficiencies and growing volumes.
Wilsons highlighted 8.1% same store sales growth and $46 million underlying segment EBITDA, 2% above the broker's previous forecast.
While analysts did not upgrade their own forecasts for the next 12 months, the expectation that GYG to meet its FY25 guidance, particularly the opening of 31 new stores, further sales growth and a higher net cash balance of $295 million all boded well for further upside.
The context: "Our FY25 forecasts remain broadly in line with IPO prospectus forecasts for now, notwithstanding the bias for change to the upside, given the strength in SSSg [same store sales growth] and restaurant margins," Wilsons analysts said.
"GYG has established a domestic store network with very attractive unit economics and sufficient scale to support expectations of a significant and successful full store rollout. GYG is well-funded and well-resourced to pursue this strategy."
It came as Morgan Stanley simultaneously lifted its price target on GYG to $38.50 from $31.80.
"As an early stage QSR operator, GYG has a long runway for growth, supported by network expansion and above-sector average [same store sales growth]," Morgan Stanley analysts said.
"Solid operating metrics (median franchisee AUV $5.1 million; ROI 53%; restaurant margin 21.4%) underpin our confidence in future brand success."
Rival broker Morgans similarly lifted its price target to $37.70, from $30.80 previously.
"We think GYG can continue to perform well through FY25 with index inclusions, sell downs to increase liquidity, strong quarterly sales updates and the inevitable earnings upgrade. However, we are now looking for a more attractive entry point with the stock trading on ~48x FY26 EV/EBITDA (pre-AASB16) in line with the median multiple of its US high growth QSR comps," Morgans wrote in a note.
However, others are less bullish as Morningstar retained its own fair value of $15 per share, the price it allocated when it first commenced coverage, placing it at odds with many brokers.
"We maintain our no-moat rating and $15 fair value estimate, and Guzman screens as materially overvalued. It is early days, and we are hesitant to thoroughly bake in management’s aspiration of 1,000 Australian stores in 20 years," Morningstar director Johannes Faul said.
"Still, we credit Guzman with strong growth over the next decade, and our fair value estimate implies a fiscal 2025 P/E ratio of around 250.
"At the current market price, however, Guzman trades at more than 500 times fiscal 2025 earnings."
The sources: Morgan Stanley research, Morgans research, Morningstar research, Wilsons Advisory research
